I stepped back in an attempt to gain some perspective. I realized many of the posts I was reading added little to my knowledge. I found many blog discussions digressed into cat fights… they were really just a battle of egos. But I couldn’t not read everything lest I miss some tidbit of knowledge.

When I started posting a series about real estate negotiating, I began to realize I might not be acting in the best interest of my clients. If I continued I would be posting a treatise on real estate negotiating… something at which I consider myself adept. While I initially thought it would great benefit to consumers, it could also easily disadvantage my clients – now and in the future. It reminded me of the scene in the movie Patton where George C. Scott is ready to ambush a tank column and says talking to himself out loud “Rommel, you magnificent SOB, I read your book.”

Of course, none of my potential bargaining counterparts probably read my blog or would take the time to do the research to find out. But I do, and therefore someone else might. So, I’m not going to proceed with that blog thread. I’ll just post it privately for client use.

I’m whittling and reorganizing my reader subscription list into prioritized categories. I skip what doesn’t appear important. If I miss something or don’t get to all posts, that’s OK. I figure if it’s that important it will show up again on multiple blogs.

The rule is: if we receive something, we give something in return… tit for tat… a favor begets a favor.

Either implicitly or explicitly, unless you’ve been raised in the jungle by chimps since birth, you’re aware of this rule. The rule of reciprocity commands a very strong and powerful influence, probably more so than you know.

Note the first action (of a gift, favor, etc.) creates an obligation on the part of the receiver. The rule dictates mutual action.

There are several associated properties of which you may or may not be aware:

1. The rule of reciprocity creates a strong sense of obligation regardless of whether the initial offering was invited or welcome.
2. The sense of obligation created isn’t directly tied to the value of the initial offering.

Item one means that a sense of obligation is created if you receive something from someone you don’t know (or even dislike), and/or regardless of whether their gift was invited or not.

The property of item two is often used as a means of manipulation by inviting or offering an asymmetrical or disproportionate response.

For example, many charitable organizations send address labels when soliciting contributions by mail. Response rates have been shown to rise dramatically over solicitations that don’t include labels – because of the obligation created. The “gift” was uninvited, and contributions far exceeds the value of a few cents worth of labels.

Your sense of obligation increases if you actually use the labels, that is, you accept the “gift”.

You may now be disagreeing, saying to yourself “I simply won’t allow myself to be manipulated like that.”

But remember: how we react depends on our current mode of thinking. Most of the time we unconsciously respond emotionally, especially when under stress. It’s faster, easier, and effortless.

An intellectual analysis requires conscious effort and takes time. In other words, it’s work. It’s also difficult to perform under stress. You’ll do better responding rationally while understanding the other side’s emotionality. I’m not suggesting it’s inappropriate to respond in an emotional fashion after intellectually considering the impact of doing so.

It’s OK to “flinch” by design.

If you say to yourself, “Oh, I see they’ve sent labels as part of an advertising ploy designed to engender my response by employing the rule of reciprocity”, your response will most likely be far different than if you’d not thought about it as such… because you understand the tactic.

Let’s turn to a few scenarios typical of real estate negotiations and consider how the rule of reciprocity might come into play.

In normal (balanced) markets a buyer will typically submit an initial offer lower than the seller’s listed price. A buyer implicitly knows that if they can get the seller to begin negotiations starting with the buyer’s initial offer, there will be a strong tendency to move toward a price that is halfway between the buyer’s offer and the seller’s listed price. Implicit is the expectation both sides will make a fair concession in return for fair a concession. In general, the lower the buyer’s initial offer, the better they will do in the long run.

Ah, you say, but in real life it doesn’t work that way. If a buyer makes an unreasonably low offer it will be simply be rejected by the seller. As a matter of fact, if the seller isn’t consciously rationally thinking, they’ll probably respond emotionally and become irritated – possibly to the point of souring further negotiations.

Think about why this might happen.

The seller actually made the first move when they listed their home with an offering price. They made what they considered (normally) was a fair offer. Then the buyer then made what the seller considered was an unreasonable (unfair) offer. The implicit expectation is “fair” in return for “fair”. In other words, in the eyes of the seller the buyer violated the reciprocity rule.

Assume the seller rejected the buyer’s initial offer and simply said: “thanks for submitting the offer but it’s outside the range we consider reasonable and we won’t be responding.” The seller is determined not to allow the buyer to anchor the low end of expectations at, what he considers, an unreasonably low level.

The buyer goes away temporarily, then returns with an offer somewhat above their initial offer. In contrast (contrast is another important psychological factor in negotiation), this is a much better offer, but the seller would probably have considered it unreasonable had it been the buyer’s first offer. But frequently a seller will have an overwhelming urge to respond to the second offer because under the reciprocity rule they feel they have an unfulfilled obligation because they didn’t respond to the first offer. Like the label example above,

once you understand what is happening, it is no longer as effective.

Think about the flip side. Consider how the rule of reciprocity might affect negotiations with a seller who decides on a price and is determined to take “not a penny less.” A buyer comes along and makes an offer at less than asking price. The seller (if not totally outraged at the buyer daring to make an unreasonable offer, that is, less than the listed price), if he deems to respond at all, counters with his original price. How do you think the buyer will respond to this perceived lack of reciprocity? Let’s suppose further the buyer grudgingly accepts the seller’s response (at full listed price). What do you expect the buyer’s posture will be when it comes time to negotiate inspection repair items?

Adhering to the rule of reciprocity has additional psychological impacts. Simply because you’ve negotiated an agreement doesn’t mean it will necessarily be consummated, eg., the transaction will close. There’s a far better chance both parties will feel committed to a transaction if they both feel they’ve negotiated well. That rarely happens without some sense of reciprocity. The satisfaction obtained from a well negotiated transaction is often a component as important as the actual price.

I could go on and on with specific examples about how the rule of reciprocity and its usage impacts negotiation. But once you understand and consider its ubiquitous silent presence, you can do that yourself.

If not, you might want to think about it. It’s important to recognize the implications of your style versus the style of the party with whom you’re negotiating.

There’s 5 basic renegotiating styles:

• The avoider. This person doesn’t like conflict and prefers to avoid confrontation (15% of the population – Saturn buyers).
• The cooperative. Let’s see how we can work this out.
• The accommodator. Let me solve your problem so you can help me solve mine.
• The competitor. Winner take all. This type has a high need to win, possibly by any trick in the book.
• The innovator or problem solver. How can we invent a solution that makes the pie bigger so we both win?

Real estate negotiations tend to be transactional. That is, they are one time events although not entirely so as we’ll explore in a moment. We all negotiate every day, but not all negotiations are purely transactional in nature. For instance, we negotiate differently with our spouse or family than we do in a business environment. Furthermore, not all business negotiations are transactional because they often involve ongoing relationships.

If you’re an avoider, you probably aren’t in the real estate business. Better you have someone else negotiate for you.

Accomodators don’t tend to do very well in real estate negotiations because they get taken advantage of by parties with other styles. Unless they are negotiating with someone with a similar style, they’ll fix the other guy’s problem and get nothing in return.

Problem solving works best in non-transactional situations. There are few opportunities in real estate transactions to be a real innovator or problem solver although it is not impossible.

That leaves us with the most common bargaining styles: the cooperative and the competitor. When each type negotiates with a similar counterpart, negotiations proceed rather smoothly (with all bargaining styles).

It’s when a cooperative and a competitor engage things tend to go awry (and/or with accomodators if they’re still in the game). Each tends to think the other party is just like them and negotiating from a similar stance. It generally won’t take long for suspicions to arise – the cooperative will offer concessions in exchange for concessions. The competitor will see that as a sign of weakness and dig their heels in. The cooperative then no longer trusts the competitor and suspects they are not bargaining in good faith… etc, etc.

So which is the best style?

There is no best. It’s just your style.

But cooperatives tend to successfully complete more transactions. Competitors have a lot their ego at stake and may opt for an “I win or there’s no deal” scenario. Contrary to popular belief, overly competitive types don’t generally fare better.

Earlier I mentioned that real estate negotiations tend to be one time events – but not entirely. Most of the time a home inspection contingency is involved with a sale. This is “round two”. When an overly competitive type has “crushed” the other side, the other side is often out for revenge in round two. If emotions fester enough, they may even intentionally kill the transaction (”no deal rather than you win”). Oh, you need an extension? Round Three.

There’s a couple of additional dynamics in real estate negotiations. Maybe you’ve already considered them.

Most real estate agents adopt a cooperative negotiating style. In contrast to buyers and sellers for whom a purchase/sale is a one time event, agents expect negotiating further transactions with the same agent or same community of agents. At the very least, their reputation proceeds them in the next negotiation. Trust plays a big part in negotiations. If word gets around an agent can’t be trusted, they may find other agents reluctant to work with them, let along negotiate.

Is it just me or have you noticed for some reason FSBO & do-it-yourself type home sellers more often than not have an overly competitive bargaining style?

What results would you expect when they (try to) negotiate (unless first understanding the implications of a difference in style)?

Ever wonder about the reason for those bellicose blog comments from FSBO’s; how their now-previous agent just wasn’t tough-enough (competitive) and seemed afraid to negotiate?

How would you as an agent with a cooperative bargaining style work effectively with a competitor type client, and vice versa? What about a listing agent dealing with an unrepresented competitive buyer where no relationship/trust has been established?

What happens when you have differing styles among a four parties: the buyer, seller, listing agent, and selling agent?

Understanding that there are different bargaining styles, and then knowing your style and that of your counterpart are the first steps to completing more successful negotiations.

I’ll offer some suggestions for negotiating effectively when your opposite number has a different bargaining style in a future post.

If you want additional information on bargaining styles in general, you might check out G. Richard Shell’s Bargaining for Advantage, 1999, Viking (I think there’s also a number of paperback editions available). Of the eight plus negotiating books on my bookshelves, his is one of my favorites. He also offers a workshop.

I don’t want to belabor the obvious, but negotiating skills vary among not only agents, but buyers and sellers.

I’m bemused by the number of agents who list “superior” negotiating skills as one services/benefits they bring their client, then fail to check their ego and emotions at the door.

Sure, emotions will invariably play a part, but educating your client up-front will minimize the extent to which they infect the negotiating process.

Does a buyer take a risk of offending a seller by making a low offer? Possibly… but isn’t this risk inherent when dealing with anyone who doesn’t know how to dance?

Negotiating styles vary (there’s 5 basic styles) and recognizing this principle is fundamental to negotiating success. Otherwise you’ll always assume the other party is just like you, that they negotiate just like you. When you don’t recognize the other party’s style is different (or even that there are differing styles), it makes for tough sledding.

Then there’s cultural differences. Members of some cultures routinely want to start at half (listed) price. On the other hand, I once had a powerful client from Japan who was concerned about offering anything less than full price for fear of loosing face. Again, educating the client is the key.

Any offer is better than no offer. A low offer may have a low probability of coming together, but you have a starting point, something to work with. (Especially if you’re a “superior” negotiator, right?)

If you can’t make it come together, graciously thank the other party for bringing forth the offer and move on.

You “gotta” learn how to dance.

Why not negotiate the repair items you’re aware of as part of the initial purchase and sale agreement? Often times I’ve seen buyer’s agents wait until the inspection report comes back before negotiating repairs they know are needed.

That’s poor negotiating strategy in my opinion. Now the buyer (your client) is out the cost of the inspection and has emotionally ‘purchased’ the property.

One of the tenants I strive for is “no surprises”. Obviously that’s not 100% possible, but I want to know the seller’s position on replacing those broken window seals, putting on a new roof, and/or pumping the septic tank up-front — before we pay for a home inspection.

Leave the inspection contingency negotiation for those unforeseen problems and your buyer will be farther ahead.

They had their facts wrong. It would have been helpful to talk with someone familiar with the forms referenced prior to their posting.

The NWMLS inspection addendum (35) has recently been changed (most recently 07/07). At one time there were two forms (35A & 35B) and they both included an optional provision for a neighborhood review. Now that provision has been moved to a separate addendum (NWMLS 35N).

However, the new consolidated inspection contingency form (35 rev 07/07) allows for the buyer to subjectively disapprove the inspection contingency for any reason whatsoever (without having to provide a reason).

Effectively, the inspection contingency could be disapproved because the buyer’s tea leaves didn’t align correctly – or they didn’t like the neighborhood.

All of the above notwithstanding, the question actually misses the point. A purchase and sale agreement is not just about price. It’s also an apportionment of risk. Adding contingencies shifts risk to the party they favor (you could have a seller contingency).

A buyer’s offer could include a contingency based upon anything, including winning the lottery or further contemplating the lint in their navel.

But why would a seller agree to take their property off the market unless the contingency was based upon something the seller could reasonably expect to be satisfied?

Seller’s usually consider a building inspection contingency reasonable because a buyer can’t ascertain the condition of a house without first paying a home inspector to crawl all over it. Furthermore, a proper inspection can’t be completed without the cooperation and consent of the seller.

As far as a contingency based upon a neighborhood review, most sellers would say to a buyer “go ahead and review the neighborhood. You and your agent can do that on your own.

When you’re satisfied with the neighborhood, I’d be happy to consider your offer. In the meantime, I’ll keep my options open and my property on the market. Someone who’s already done their homework may actually want to buy it, not just tie it up at no cost.”

When you can’t walk away from a deal, you’ve lost your negotiating power.

And, of course, on the flip side the seller has to answer the same question – is it OK if we walk away from this deal?

Walking away from a deal and saying no are not necessarily the same thing. Perhaps the transaction can be reformulated a different way. Maybe there’s some give and take on both sides possible.

But in the end, if you have to have the deal you’ve lost the negotiating game.